* Euro broadly softer ahead of ECB policy review
* Disappointing Italian and German data hit sentiment
* Dollar suffers sudden selloff versus yen
By Ian Chua
SYDNEY, Aug 7 The euro nursed broad losses early
on Thursday after a batch of disappointing data from Italy and
Germany soured sentiment for the currency just hours ahead of a
policy review by the European Central Bank.
Italy unexpectedly slid back into recession in the second
quarter, while German industrial orders in June posted their
biggest monthly fall since September 2011.
Investors were quick to dump the euro, driving the currency
to its lowest in over eight months against the yen at 136.16
. It skidded to a three-week low on the Swiss franc,
hitting 1.2140 francs.
Against the dollar, the common currency initially slumped to
a nine-month trough of $1.3333, but then erased all of
its losses and then some to trade back at $1.3385.
The recovery came when the dollar went into a free fall
against the yen in thin conditions just after European markets
It slid as far as 101.76 yen, from around 102.30 in a
matter of a few minutes, prompting talk of a fat-finger trade,
or a large order that created some indigestion.
"Yet a later examination by an institutional trade desk
suggested that it was simply panic selling which forced many
nervous speculators out of their leveraged positions," said
David Rodriguez, strategist at DailyFX.
"The unexpected volatility underlines the risks below the
surface as FX market volatility falls near record lows. Clearly
many traders fear the next major currency move is just around
the corner, and any especially crowded trades seem at risk as
speculators will flee at the first sign of danger."
The dollar has since managed to recover only about half of
the losses and was last at 102.13 yen.
With the excitement over, investors are now waiting for the
outcome of the ECB policy meeting due later in the day.
The bank is expected to leave interest rates on hold as it
assesses the impact of cuts made in June, when it also promised
up to 1 trillion euros in cheap long-term loans to banks from
However, Wednesday's data coupled with persistently low
inflation in the euro zone should keep alive market expectations
for the bank to eventually turn to quantitative easing.
Markets will be looking at how ECB President Mario Draghi
characterises the present state of the economy, given the risks
to Germany's economy are rising and the effect of Russian
sanctions and geopolitical risk may have lowered the ECB's
"An acknowledgement may be enough to send EUR lower, but the
bigger risk is if they see these factors as only minimal or
temporary. That may have a bigger positive impact on EUR;
probably short-lived," said Emma Lawson, senior currency
strategist at National Australia Bank in Sydney.
In Asia, employment figures out of Australia at 0130 GMT
will be the highlight. The Aussie hit a one-week high of $0.9376
overnight, raising the risk of a pullback should the
Analysts polled by Reuters expect the economy to have
created 12,000 jobs in July and the unemployment rate to remain
steady at a decade peak of 6.0 percent.
(Editing by Eric Meijer)